Monday, 03 June 2013 15:52

D&B reports two-day improvement on late payments since 2011

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Overdue payments by British businesses have been improving steadily over the past two years, and are now settled two days faster than in 2011, according to analyst D&B.

Two years ago, the average late payment was made 17 days beyond agreed terms, a figure that has now improved to 15 days, but has as far to go again if it is to match 2006's average of just 13 days.

Compared with continental Europe, the UK's payment promptness is broadly similar to those of France, Italy and Spain, a full seven days faster than Portugal, but nine days slower than best-performing Germany.

Within the UK, agricultural businesses pay most promptly, at an average of 11 days beyond agreed terms, while the financial services sector, including insurance, does little to enamour itself with disillusioned Brits, with the slowest payment time of all at 17 days beyond terms.

EU Late Payments Directive

D&B are the first organisation we've seen not only carry out independent research on this issue, but also set it in the context of the recently introduced EU Late Payments Directive.

They warn that the new legislation could see penalties imposed on overdue invoices that are not settled within 30 days for public authorities, and 60 days for businesses throughout Europe.

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"Whilst it will help protect some businesses, the updated Directive presents new risks for companies struggling to manage their finances and pay on time, due to the potential interest liability risk," the analyst states.

Interest at 8% above the Bank of England reference rate (the base rate on the most recent of December 31st or June 30th) can be added, along with penalty fees and debt collection costs, to overdue invoices - potentially leading to a significant increase in the total amount owed.

Three Steps to Success

D&B have outlined a three-stage process to help maximise healthy cash flow - and it goes along with the general guidance we often give to businesses looking to reduce their risk, limit their liabilities, and insulate their income against the shock of late payment.

The three recommendations made by D&B are:

  • actively monitor payment activity to maintain healthy cash flow in light of the tightened availability of credit in the aftermath of the recession;
  • regularly review customer payment behaviour, reduce risk by directly addressing late and delayed payments, and tighten terms and conditions on renewal where appropriate;
  • make note of any available information on payment behaviour in non-UK countries, customise terms for international customers, and reduce risk where possible.

This last point is fundamental to businesses offering goods and services internationally, as it can be a complex process to claim unpaid money across borders.

Although the EU Late Payments Directive should simplify the process of doing so within the EU community of member states, prevention is still better than cure, which is why we would still recommend a careful approach to credit control as a whole - from the credit limits you offer, to the cohesion and clarity of your invoicing process - rather than simply pursuing customers for funds when they have already failed to pay.

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